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Here's a guide to retirement.

Planning for retirement can be a lifelong process and the sooner you begin, the longer your savings and investments have to grow. But retirement is more than just a numbers game. While it’s important to have a clear financial goal to work towards, it’s just as important to define what retirement means to you.

The government has one standard for retirement, but your vision may look differently. Understanding what kind of lifestyle you’d like to enjoy in your later years can help you create a solid plan for reaching it.

Defining Retirement: Uncle Sam’s Perspective

Social Security may be one of several income sources you’re planning to tap in retirement. Technically, the earliest age you can begin receiving Social Security retirement benefits is 62. But taking benefits as soon as you’re eligible – either drawing on your own work history or taking spousal benefits – can reduce the amount you receive monthly.

To get your full benefit amount, you’d need to wait until reaching what the Social Security Administration calls your full or normal retirement age. For people born between 1943 and 1954, full retirement age is 66. Full retirement age ranges from 66 years and 2 months to 66 years and 10 months for people born between 1955 and 1959. If you were born after 1960, your full retirement age increases to 67.

Essentially, the government defines retirement as the age when you can claim full benefits. Uncle Sam doesn’t take your personal financial situation, money goals, health, or life expectancy into account. He also doesn’t consider when you plan to retire or how you’d like to spend your golden years.

How to Create Your Own Definition of Retirement

Here's a guide to retirement.

The dictionary defines retirement as no longer being part of the workforce and living off of savings and investments. It’s generally a time when you spend more time pursuing leisure activities.

But Linda Leitz, certified financial planner and certified member of the Alliance of Comprehensive Planners, says it’s important to define retirement from your own perspective and values. It should center on living a life that’s meaningful to you. These tips can help you create your custom retirement plan:

1. Decide What’s Most Important

The first step in defining retirement is identifying how you want to spend your newly available time. You may want to travel the world, explore new hobbies or even use your skills to work part-time or start a side hustle.

Next, you should consider when you’ll retire. The FIRE movement – Financial Independence / Retire Early – promotes retiring well ahead of the normal retirement age, but you might want to delay retirement and stay in the workforce longer.

2. Estimate What Your Retirement Will Cost

Once you’ve thought about what your retirement will involve and when you hope it will begin, you can estimate how much savings you’ll need to make it a reality. If you’re pursuing a non-traditional retirement like starting a business or living on a cruise ship, your retirement budget may look a little different than others.

Once you’ve estimated your budget, compare the estimated outgoing expenses to your estimated income in retirement. That includes Social Security benefits, pensions, 401(k) withdrawals, IRA withdrawals, cash savings and CD earnings, along with any inheritances you may receive and annuities you purchase.

3. Evaluate Your Current Progress

Your retirement budget and income estimate can help you assess whether you’re doing enough today to reach the retirement you hope to have down the line. Take a hard, honest look at your savings and investment accounts as they stand today. Does it seem like you need to bump up your401(k) contributions or adjust your your portfolio allocation?

As with saving in general, you’ll be better off the earlier you evaluate. Even if you are wary to check on your retirement savings because it seems lacking, the best thing you can do is start working toward a solution that bulks them up as needed.

4. Create a Contingency Plan

Life doesn’t always go according to plan. While you may have a set definition of what retirement means, there’s no guarantee that you’ll be able to pull it off perfectly. For example, you could develop a serious health issue that significantly increases your monthly spending or you may need to provide financial support to one of your relatives.

To prevent these types of scenarios from derailing your retirement plans, you can increase the size of your emergency fund beyond the six months’ of expenses typically recommended by financial experts. Keeping a year or even two years’ worth of expenses in a high yield savings account means you have money that’s readily available when you need it, without having to drain your retirement accounts.

5. Talk to a Professional

The key to successfully defining retirement is to make it as personalized as possible. And connecting with a professional financial advisor can help you do just that.

“The best way to create your own plan for financial independence is to work with an advisor who doesn’t assume your financial decisions will be based solely on some standard set of metrics,” Leitz says. “Work with an advisor who will listen to what’s important to you and sees your money as a way to fulfill your life goals.”

Tips for Planning Your RetirementRetirement Definition

  • Finding the right financial advisor to help plan your retirement doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Once you lock in an advisor, take time to go through your retirement definition. You’ll want to discuss how much you need to save, whether your goals are realistic and how to reach them. Tax planning and the possibility of long-term care should also be part of the discussion to ensure that your financial plan for the future is sound.

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/DragonImages, ©iStock.com/artisteer

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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